Pound Down on Bailey Comments

The British Pound has come under heavy selling pressure on the back of the March BOE meeting yesterday. While the bank held rates unchanged, as expected, the outlook and guidance leaned more to the dovish side than many were expecting. There was a clear shift in the voting split this time around with no members voting for a hike (down from 2 last time) and 8 members instead voting for rates to be held unchanged, with 1 voting for a cut.

Almost There on Inflation

Along with the shift in voting, the guidance offered by BOE governor Bailey was notably more dovish. Bailey explained that the time would soon be right for cutting rates, though said that they aren’t quite there yet with inflation. Looking ahead, however, the bank now forecasts inflation to dip below its 2% target by summer, meaning that traders are now pricing in a rate cut earlier than August, which had been the target date for markets prior to this meeting.

Better UK Economic Outlook

In terms of his broader assessment of the economy, Bailey was clearly optimistic. The BOE chief noted that with global shocks unwinding and the economy “effectively disinflating at full employment”, the UK economy was in an unusually strong position. However, he did warn that risks still remain, particularly linked to conflict in the Middle East and disruption to global shipping routes. For now, however, the BOE looks on course to cut rates by June which should keep GBP pressured near-term.

Technical Views

GBPUSD

The market is turning heavily lower today with price having broken below the bull channel lows and back under the bear trend line from 2023 highs. Price is now testing the 1.2612 level support and with momentum studies bearish, risk of a breakdown towards 1.2437 remains high.